Financial Fitness Blog

You may not think about a teenager opening a Roth IRA, but doing so can be a savvy money move on their part. Time is on your teen’s side because they can benefit from decades of compounding interest in their account.

Compounding is when earnings on your investments are reinvested in your account. The reinvested earnings may also have earnings, and then those earnings are reinvested and on it goes. It’s said that Albert Einstein called compound interest the “eighth wonder of the world.” The earlier teens start saving the better, even if it’s just a small amount.

Your child must have income from a job to open an IRA—gifts of money, interest on a savings account, and allowances do not count. However, the IRS doesn’t care if parents or grandparents actually make (or help with) the contribution as long as it’s not more than the child earned in any given tax year, up to $5,500 in 2013.

Convincing your teen to part with his or her hard-earned money in order to prepare for 2050 or later may be a challenge, but getting their “buy in” can impart a powerful message and instill good financial habits. To help them with the decision, use interactive financial calculators that demonstrate the long-term benefits of compounding interest to get your teen’s attention. You can use the compound interest calculator at the Council for Economic Education's Web site.

The Trustee Custodian for the WEAC IRA accounts is Newport Trust Company. This article is for informational purposes only and not intended to be legal or tax advice. Consult your tax advisor or attorney before taking any action.

Did you know that WEAC members receive preferred pricing on Member Benefits programs and services? WEAC created programs such as our nationally recognized 403(b) and personal insurance programs to give members a quality alternative to for-profit providers of financial services.

While eligibility for participation generally includes all Wisconsin public school employees, WEAC members receive preferred pricing. Most recently, we added a WEAC member discount for members participating in our auto, home, renters and condo insurance programs. If you are a WEAC member and don’t currently participate in our programs, take a closer look at us. Your membership could save you some money.

Retirement provides a chance to enjoy the fruits of one's labor. However, a pleasurable retirement requires proactive and thorough planning. As you near retirement age, take stock of your financial situation to make sure you are on track. If you are not where you should be, don’t fret. You still have time to change the outcome. Take advantage of opportunities to beef up your savings and prepare for a financially secure retirement. Here are six steps you can take in the final stretch to help you prepare for a comfortable retirement.

Save, save, save! The key to a secure retirement is building up your personal retirement savings to supplement what you will receive from Wisconsin Retirement System and Social Security. This becomes increasingly important as national trends indicate a shift from a defined benefit plan model where workers receive pension benefits based on years of service and final salary to a self-funded model.

Play catch up. Remember, as you close in on retirement you have less time to build up your nest egg. So, don’t miss out on savings opportunities. If possible, max out your contributions in tax-advantaged savings accounts like a 403(b) and IRA. Plus, consider catch-up provisions if you are 50 years of age or older to help top off your savings. The 2013 annual 403(b) contribution limit is $17,500. Those 50 years of age and older may contribute an additional $5,500 or a maximum of $23,000. The 2013 IRA maximum contribution is $5,500. Contribute an additional $1,000 if you’re age 50 or older.

Put five years of fixed investments in a bucket. People with mutual fund (equity) investments worry about their investments losing value because of poor stock market performance at the time they need to make withdrawals. Having enough money for five years in a fixed account at retirement is a strategy often called the ‘bucket approach.’ This allows you to withdraw from two different buckets depending on the state of the stock market. Withdraw from the fixed investments bucket when the stock market performs poorly and from the bucket with the equity investments when the market is doing well.

Reduce your debt. Plan to pay off all non-mortgage debt before you retire. If you can afford to pay a bit extra on your mortgage while you are still working, do that, too.

Explore the benefits of “tax diversification.” Many experts advise having a combination of before-tax and after-tax (Roth) retirement accounts. The Roth allows you to diversify your tax liability in retirement since most other sources of income (WRS and Social Security benefits) will be taxed as regular income. Roth savings may also be a good choice if you wish to pass along assets to your heirs.

A recent ruling involving Medicare services has many members asking if the ruling affects long-term care. The federal case deals with the provision where Medicare would not approve skilled care services for individuals with chronic conditions like Alzheimer’s, strokes, multiple sclerosis, and Parkinson’s disease who had no prospects for improvement. Under the terms of the settlement, it will no longer matter whether or not a person is “making progress towards recovery” to qualify for skilled care benefits.

It’s important to understand that while Medicare is expanding its skilled nursing care services, benefits are still limited to 100 days after a three-day covered inpatient hospital stay. After 100 days, Medicare patients are responsible for 100% of skilled nursing care costs.

Additionally, Medicare does not cover unskilled custodial care to help with activities of daily living, which include such things as bathing, dressing, feeding, etc. Most nursing home care is custodial care.

We invite you to contact us with questions about Medicare or your own health insurance policy regarding how much long-term care you’ll qualify for under these policies. Understanding what coverage you have, as well as the type of care you may need, is important for planning for your future. To schedule a personal phone/online appointment, call 888-247-5905 or visit wealtc.membersplan.org.

Did you make a New Year’s resolution to get your finances in order? If so, you are not alone. Getting out of debt and saving more money tops the list of most common resolutions made by Americans each year. Big tasks? You bet. But not impossible. The key to reducing debt and saving is spending less.

The first thing you need to do is find out where your money is going. Start by listing your expenses and categorizing them as either a necessary or a discretionary expense. Necessary expenses are things like rent or mortgage, car payment, gas and electric, and groceries. Discretionary spending includes dining out, a specialty coffee drink, or spa service.

To get a good handle on your spending, you may need to track your expenses for several months. Using a budget worksheet or an online service like mint.com may be helpful.

Once you understand where your money is going, it will be easy to start making changes. Redirect money you save by eliminating discretionary expenses to pay down debt. After your debt is under control, funnel that amount into savings. Build an emergency savings fund for unexpected expenses such as a new furnace or car repairs and open an IRA or a 403(b) to prepare for a comfortable retirement.

To make a big impact on your household budget, look at your biggest expenses: typically housing and transportation. Financial professionals suggest that housing costs (including taxes and insurance) should not exceed 35% of your pretax income—with some saying no more than 25%. If your housing costs are out of whack, it may be time to consider a move. Driving a more economical car or eliminating the extra vehicle can also save you substantial amounts.

Interest is compounded daily to produce a 3.15% yield net of Prudential's administrative fee of 0.60%. PRIAC is compensated in connection with this product by deducting an amount for investment expenses and risk from the investment experience of certain
assets held in PRIAC's general account. For more information, go to weabenefits.com/pru.

Target retirement funds invest in a mix of stock and bond funds that steadily become more conservative as they approach their target date. Target retirement funds are not guaranteed and may gain or lose value now and after their target date.

Keep in mind that mutual fund investments are not guaranteed and may gain or lose value. Past performance is no guarantee for future results. Future performance may be lower or higher than past performance. Before investing in any mutual fund, call WEA Member Benefits at 1-800-279-4030 to request a prospectus. We advise you to read it carefully and consider the fund's investment objectives, risks, charges, and expenses carefully before investing. The prospectus contains this and other information about the investment company.

Seminars are free to attend; however, if you choose to invest in the WEA Tax Sheltered Annuity or WEAC IRA program, fees will apply. Consider all expenses before investing.

This is for informational purposes only and is not intended to constitute legal, financial, or tax advice. Certain recommendations or guidelines may not be appropriate for everyone. Consult your personal advisor or attorney for advice specific to your unique circumstances before taking action.

Equipment Breakdown insurance is underwritten by Mutual Boiler Re.

The Trustee Custodian for the Personal Investment Accounts
is Mid Atlantic Trust Company. The Personal Investment Account Program is
offered by WEA Financial Advisors, Inc., a registered and investment advisor
under the WEA Member Benefit Trust.